Concerns about environmental, social and governance (ESG) issues are increasingly pivotal factors in investing, but most investors lack an understanding of how ESG factors impact their portfolio, according to research.
Moreover, the study, issued by RBC Global Asset Management, demonstrates many investors remain unconvinced about ESG as a source of alpha or risk mitigation.
The survey also reveals lingering uncertainty over responsible investing’s ability to drive financial performance and mitigate portfolio risk. Only a third of respondents said they considered ESG to be a risk mitigator, and just 30% considered ESG investing to be a source of alpha.
This may derive from investors’ dissatisfaction with the amount of relevant data currently provided; 43% said they were somewhat or completely dissatisfied with the ESG-related information companies make available.
Elsewhere in the survey, 52% said negative screening tactics – excluding stocks with poor ESG credentials – are not applied by the bulk of investors, with screens appear to be more prevalent amongst mission-driven investors. Less than a third believed negative screening impacts alpha, suggesting that for these investors, screening is more a philosophical decision than an alpha-driven one.
Habib Subjally, senior portfolio manager and head of global equities at RBC GAM said the misconceptions around ESG suggest an inefficient or immature market where the value of these factors are not reflected in valuations, and investors who understand how to identify and properly value those factors can still gain an advantage.
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